Tax hike could raise rent prices

The mayor’s budget includes a property tax levy increase, troubling some area landlords.

Morgan Wolfe

In an area saturated with luxury apartments and new development, a proposed citywide property tax increase has some property owners in University of Minnesota neighborhoods worried that they’ll need to increase their rental rates.

City Council members will cast their final votes on Mayor Betsy Hodges’ proposed 2015 budget at a public hearing Wednesday. The proposal includes a 2.4 percent property tax levy increase for the city next year, which local officials said forces property owners to decide whether to absorb the potential added cost or push some of it off on renters.

Market values for the new, high-demand apartments around campus — like WaHu and the Marshall — could keep property rates up, officials say.

Dinkytown Rentals owner Tim Harmsen said more than three-quarters of his properties are already booked for 2015-16, adding that he simply raises rates annually based on historical tax increases.

“When [city officials] raise the property taxes, they’re raising rent,” Harmsen said. “I don’t pay property taxes. The customer does.”

He said property taxes are like utilities and other costs — all part of his equation for determining rental rates.

The property tax revenue helps pay for services like traffic control, police and snow removal. The proposed increase comes alongside Hodges’ plan to improve public safety by hiring 10 new police officers.

Mark Freund, who owns 10 properties around campus that he leases to students each year, said continuously rising property taxes have him questioning the future of his 18 years in the business.

“The first thing that goes through my head when I see the increases is, ‘How long can I continue doing this?’” he said, adding that he also increases rent in some locations when property taxes go up.

Owners must also consider the timeline for when new taxes take effect, Harmsen said. Since decisions are made for tax hikes months in advance of their rollout, it’s not an instant change.

For example, any changes in the 2015 budget might not affect renters until 2016-17.

Market forces at work

Property owners and government officials say an influx of high-value apartments near the University will continue to provoke property tax increases, although the spike in housing supply could stabilize rental rates down the road.

Minneapolis City Assessor Patrick Todd said property tax base for apartments will likely continue to rise as new developments citywide increase property values.

He said assessors consider a number of things when determining individual property values.

“We ask ourselves, ‘How are buyers and investors looking at these buildings? What are their motivations for investing in this property?’” Todd said.

With the recent spike of luxury apartments, Freund said, he worries that students will be less inclined to live near
campus.

“The increases [to rental rates] are only hurting the students. The U could lose its sense of community if students decide to save money by commuting,” he said.

Daniel Oberpriller, owner of the CPM Companies real estate firm, said he thinks Dinkytown development is revitalizing the area, adding that the growing supply of apartments should ease students’ worries about price increases because it could offset hikes.

“People have better housing options than ever,” Oberpriller said. “Prices will eventually stabilize.”